The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Banking

Bond Outlook November 8th

Yield curve inversion usually signals a coming recession, but, overall, the global economy looks good. Can there be another explanation for inversion linked to high global liquidity?

Bond Outlook [by bridport & cie, November 8th 2006]

In Europe, both within and outside the euro zone, interest rates are clearly on the increase, while 10-year yields are still declining. Flattening of the EUR yield curve led to our recommendation of barbelling. Now it seems flattening will turn into inversion, in the light of the continued hawkishness of the ECB and member banks. The EUR 2/10 year spread is close to zero. The ECB has warned of at least one more hike, if not two; we cannot imagine 10-year yields exploding, so inversion now seems inevitable.

 

Much like the EU Finance ministers, who are again at loggerheads with the ECB, we fear that the next refi rate hikes might be a step too far, constraining the European economic growth before it consolidates. The ECB, in contrast, sees such healthy growth that higher rates can not only be carried, but are even needed to avoid internally generated inflation.

 

If the economy is doing so well, why are long yields so low and getting lower? Does not an inverted yield curve, such as that in the USA, herald a major slowdown with central banks rescuing their economies with rates cuts? If so, bond markets have a totally opposite view to equity markets.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree